Singapore's economy grew an annualized 7.2% in the first quarter, slowing from the fourth quarter rate but exceeding forecasts, while the country's central bank stuck to a policy of modest currency appreciation.
The Monetary Authority of Singapore (MAS) reiterated its expectations for growth of between 4.5 to 6.5% this year and said the external environment would remain broadly supportive of sustained growth.
But it said a number of risk factors had emerged.
"US economic growth has lost some momentum, led by the correction in its housing sector, and the problems in the subprime mortgage market may yet lead to some retraction in consumer spending," the MAS said in its twice-yearly statement."
It added that the global IT industry remained weak on a build-up of inventories and strong competitive price pressures.
The MAS also held on to its forecast for inflation of 0.5 to 1.5% in 2007, even though analysts say inflationary risks are on the rise due to higher asset prices and a planned increase in the goods and services tax from July 1.
The Singapore dollar, which has been trading at a near-decade high, drew further support from the news, rising as far as 1.5115 against the U.S. dollar.
The central bank, which conducts policy through the Singapore dollar rather than through interest rates, said conditions in the IT industry would likely remain sluggish till later in the year, but added that the economy would be supported by growth in services.
"This suggests some decoupling from the U.S. slowdown," said Chua Hak Bin, an economist at Citigroup, who expects GDP to land at the top end of the government's forecast range.
The first-quarter expansion compared with 4.9% growth forecast by economists in a Reuters poll and followed a 7.9% expansion in the fourth quarter of 2006, the Ministry of Trade and Industry said in its advance estimate for the quarter.
Analysts expect the island will draw support from new areas such as financial services, tourism and a fast-recovering construction sector thanks to major projects such as two multi-billion dollar casinos.
From a year ago, gross domestic product was 6.0% bigger in the first quarter, above expectations for 5.4% growth.
The advance estimate, based largely on data from January and February, gives an early indication of the economy's performance in the January-March period.
Economists said unexpectedly strong growth in the construction sector, which expanded by 7.0% in the first quarter, helped offset slower manufacturing output.
Singapore is seeing a flurry of projects in both the public and private sector as residential property prices pick up and as work started on one of two planned casinos.